If you run a business, you might need a license, permit, or certificate of some kind in order to operate. And you might even need more than one of these documents, depending on the work that you do. If that’s the case, you certainly aren’t alone, as many businesses have to apply for licenses and/or permits from local, state, and federal governments.
What are the types of business licenses out there, as well as the requirements associated with them? This article should help clear up some of your questions. Just keep in mind that, while we’ve made every effort to ensure the information below is up-to-date and accurate, it doesn’t constitute legal advice, and it isn’t a substitute for legal advice. If you have specific questions about your particular business, contact your attorney for guidance.
The Basics on Federal Licenses and Permits
For most small businesses, the federal government doesn’t require licenses or permits. But there are certain types of activities that are regulated by one or more federal agencies, and those activities might require a federal license or permit.
What are the types of business activities that are regulated by federal agencies and may require a federal license or permit?
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
So, if you’re involved in any federally regulated activity, the next step would be to contact the federal agency that’s in charge of that activity. Find out what its requirements are and then follow through so that you can conduct business legally.
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As an example, if your business is involved with aviation, you’d be regulated by the Federal Aviation Administration, so that would be the place to go for more information.
Tip: You can access a list of all federally licensed activities, along with links to more information, by visiting this website maintained by the U.S. Small business Administration.
What About State Requirements?
There are a few states in which all businesses need to obtain state business licenses, in addition to any local licenses required. Those states include Alabama, Alaska, Delaware, Florida, Ohio, Nevada, and Washington State.
Most states don’t have a license requirement for all business across the state. However, these states do have license and/or certification requirements for an array of business activities and occupations that require extensive training or that expose consumers to potential hazards. Those typically include:
- Medical professionals
- Building contractors and other construction related occupations
- Barbers and cosmetologists
- Architects and engineers
- Real estate brokers and salespersons, and
- Private investigators and other security services
Let’s use an example here to clarify: If you want to work as an architect in your state, you’ll likely need a license or certification from a state agency that regulates architects. Makes sense, right?
A search of your state government website will likely reveal a comprehensive list of all of the occupations that are regulated by state agencies, as well as access links to the appropriate agency that would apply to your business.
Note: The procedures for getting your business license will vary from one occupation to the next. You might have to meet specific educational or training requirements, or you might need experience in the field. You might even have to take a written exam and pass it before getting your license. And, as you might have guessed, there is a license fee that you’ll need to pay as well.
Do you really need to worry about getting your state business license?
In the event that the state discovers that you’re working in an occupation without a required license, a host of bad things can happen.
You’ll undoubtedly be ordered to stop doing business, for one thing. But you might also be fine.
Plus, depending on your occupation, failure to obtain a license might even constitute a crime as well.
Bottom line: going through the proper steps to get your license before you start conducting business is always a wise move.
What About Local Licenses?
Let’s say that you aren’t required to get a federal license or a state license. You might think that you’re in the clear. Think again. There’s actually a good chance that you’ll need to get a local business license.
In most states, each city and county establishes its own licensing requirements and procedures. Many counties and cities require business licenses or permits for all businesses, including one-person, home-based operations.
If you’re conducting business within a city’s limits, check with your city government to determine licensing requirements. On the other hand, if you’re in an unincorporated area, check with the county government. And if you have an office in more than one city or county, you might need to get a license for each one.
Usually, you just have to pay a fee to get a local license, but some cities exempt very small businesses, so that’s helpful for little guys that are first starting out.
Fees will vary by locality, and they could range from as low as $15 to as high as a few hundred dollars. Fees can also be based on your projected gross revenue (for example, 10 cents per $1,000 of projected revenue).
The good news is that getting your local license is pretty easy. Basically, your city and/or county has a website that will explain its licensing requirements.
Once you know where to go, you might have the option of applying for your license online. Otherwise, you might be able to download an application and email it to the appropriate party or just mail it in.
What will you need to provide when submitting an application for a local business license? Well, you’ll likely be asked for the following information:
- Social Security Number or Federal Employment Identification Number
- A description of your business activities
- Your legal business name and any assumed name or “dba”
- Your business start date
- The number of employees and your expected annual sales
- Your business address and contact information,
- Each business owner’s contact information
- Your business sales tax number, if any
After submitting your application, you’ll usually receive your license or certificate with a business license number within a few weeks in the mail. Once you have it in your possession, you may be required to post it at your place of business.
Just keep in mind that you’ll be required to renew your license periodically, and that might involve an additional fee. Oftentimes, a renewal is required every one to three years, so be sure to mark your calendar so you don’t skip a beat and so you don’t have to pay late fees.
Do you really need to worry about getting your local license?
Yep! It’s true that a lot of self-employed individuals, particularly those who work from home, never get a local business license. But if your local government were to find out that you’re running an unlicensed business, you might be fined, and you might even be prevented from doing business until you obtain the license. So it’s always best to avoid problems by researching the license(s) you need and applying for them so you can do business without having to worry. And if you need help, you can always ask the experts at Hyke!
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.